從臺北看天下 . chinese language newspaper editorials . translated by bevin chu . no endorsement of the editorials should be inferred

Wednesday, January 14, 2009

Is Protectionism About to Raise Its Ugly Head?

Is Protectionism About to Raise Its Ugly Head?United Daily News editorial (Taipei, Taiwan, ROC) A Translation January 14, 2009

The entire world is attempting to rescue the economy. Interest rate competition has brought rates down to nearly zero. Monetary policy is no longer effective as a stimulus measure. The only methods left are government-to-business financial relief, or exchange rate depreciation. These can all be regarded as protectionism of a sort. In 2009, protectionism has become a growing concern.

The contraction in demand has led to a sharp recession. Every nation's production capacity is greater than its production. Every nation's production exceeds its need. A labor surplus has led to large-scale layoffs. All these provide a breeding ground for protectionism. Since mid-December last year, the world's governments have clearly tilted in this direction.

‧ French Prime Minister Mr. Sarkozy recently said Europe must take all necessary measures to protect its manufacturing sector, otherwise it will become an "industrial ruin." In other words, protectionist sentiment has significantly increased.

‧ In the United States the media, including professional journals, have increasingly made mainland China the scapegoat for the recession. Susan Schwab, US Trade Representative to the WTO, has officially accused mainland China of providing cash subsidies and low-interest loans to its industries. She has accused mainland China of dumping machinery and clothing. The United States International Trade Commission has officially proposed increasing import duties on China's iron and steel products from 35% to 40%. Rumors have emerged that before stepping down, the Bush Administration deliberately encouraged Israel toi invade the Gaza Strip, leaving a mess for Barack Obama to clean up. Meanwhile, these two major protectionist measures are messes the Bush administration has left for the new president to clean up in the economic and trade realm.

‧ Mainland China's Ministry of Commerce decided to initiate anti-dumping investigations before New Year's Eve. It will investigate dumping of European carbon steel components widely used in automobiles, electronic equipment, heavy machinery, and building construction. If necessary, it will appeal to the WTO. In recent years mainland China's iron and steel industry has developed rapidly. It now accounts for 40% of global production. Related precision industries have also made rapid progress. Advocates consider this a means of protecting its own precision industries.

The trends cited above are merely the most conspicuous. This is the most serious recession in 70 years. It is not part of the ordinary business cycle, but represents the bursting of a bubble economy, caused by global tightening. That is why although the world has spent several trillion dollars to rescue the economy, none of the measures have been effective. Instead, the situation has become increasingly serious. According to the World Bank's latest assessment, global trade this year will decline 2.1 percent. Unemployment on the other hand, has been climbing. Last year unemployment in the United States increased from 6.7% in November to 7.2% in December. In the Eurozone unemployment currently stands at 7.8%. In Germany it stands at 7.6%. The most destructive aspect of the recession is the surge in the number of unemployed. Therefore current efforts have shifted from saving the stock market and saving home mortgages, to preventing unemployment and saving industries. If other means of rescuing the economy fail to take effect immediately, especially regarding unemployment, protectionism will be the most expedient means populist demagogues use to rally political support. The temptation is not hard to understand, especially for the incoming Barack Obama, who will be inaugurated less than a week from today. The 1930 Smoot Hawley Tariff Act victimized the entire world. History must not be allowed to repeat itself.

Therefore, the Israeli-Palestinian issue will be Barack Obama first political test upon taking office. Protectionism will be his first economic test. In recent weeks, The U.S. Edition of Business Week this made this its cover story. The importance of the issue must not be underestimated, especially in Washington and Beijing.

For the past twenty-five years, the US has been sitting pretty. Its imports have increased from 9 percent GDP to 18 percent. Meanwhile its manufacturing sector workforce has fallen from 17 million to 13 million. According to U.S. statistics, mainland China's clothing exports to the U.S. constitute over half the market. Over a dozen important iron and steel plants in the United States have been shut down. Mainland China's iron and steel pipe exports to the U.S. have increased by the month. This is why liberals advocate protectionism. Obama has expressed protectionist sentiments over South Korean's automobile imports and mainland Chinese products. How he resolves the contradiction between free trade and unemployment is worth watching. We will know soon enough. Obama also advocates resorting to deficit spending to save the economy. US government debt will reach 1.2 trillion USD this year. The U.S. has repeatedly asked mainland China and oil-producing countries use their foreign exchange reserves to patch up the holes in the US economy.

When the time comes, will the United States use protectionism as a means of applying pressure vis a vis foreign exchange? Will it be held hostage by liberals committed to protectionism? These bear close watching. Once protectionist policies are implemented, they will worsen the global economic crisis. No economy, including Taiwan's, will be spared.

About Me

Bevin Chu is a free market anarchist currently living in Taipei, China. His newest blog, An Enemy of the State, is his flagship blog. Articles from his previous flagship blog, The China Desk, have appeared at the wildly popular libertarian website LewRockwell.com, where Chu is a columnist/commentator; at Antiwar.com, the best known anti-war website on the Internet; and at the China Post, where he was a contributing editor. They have even appeared in Pravda -- the post Cold War, post Communist Pravda, of course.